Do you need a license to own a Property Management company?

January 15, 2021

by an member from University of Toronto in Toronto, ON, Canada

I'm researching the property management industry for a search fund I'm interning at. From what I understand, in most states property managers need to have a real estate broker license to operate.

Does this restriction apply to the owners of the PM company or just those doing the actual (rent collecting, tenant showing, maintenance contracting) property management? For those of you who own property management firms, do you need to hold a license yourself or just partner/employ someone with a license?

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Reply by a searcher
in Boulder, CO, USA

In CO I believe you can buy the business without the brokers license, but you need a suitable manager on staff with a broker license to oversee all lease agreements and transactions. Obvious risk to your business if they exit before you have your license. When I looked at one PM deal, I anticipated having to do a full background check on the manager and giving them an equity position as part of the transaction to allow me time to get the required license in 2+ years. Tricky but potentially doable. The bank may have a problem underwriting that deal to buyer that isn't fully licensed to operate though...worth checking with your banker. Anecdotally, I later learned that the group that bought that PM company paid full asking price with cash at closing, the owners retained equity in the company, with a 2 week close. It was an attractive business for sure.

Reply by a searcher
from Brown University in Lafayette, CA, USA

It varies state by state but a good expectation default is that you need a brokerage license. In CA, for example, anyone even discussing prospective rent with a tenant needs a salesperson license. That salesperson needs to be overseen by a corporate brokerage license, which comes from, e.g., an officer (involved in the daily operation) having the license already (and the associated 2 year process). PM businesses cannot be bought if you don't have a license without some form of holdover from the current license holder until you have your own (again, usually 2-3 years).

And...disclaimer...check each state's department of real estate (or similar government function) to confirm.

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